Macro scenario - Global

June 10, 2024

Resilient activity and persistent inflation point to caution in cutting

interest rates

 Global: despite the start of the easing cycle by some key central banks, including the European Central Bank
(ECB) and Bank of Canada, we expect caution to prevail among monetary authorities in developed
economies.

 U.S.: despite the deceleration in activity and inflation, levels remain high and do not justify interest rate cuts
much before the end of the year. We continue to expect only one 25-bp cut this year, likely in December.

 Europe: we revised our growth forecasts to 0.7% for 2024 (from 0.5%) and 1.0% for 2025 (from 0.9%), in light
of the better activity data in the short term. The ECB has started its monetary easing cycle and signaled
caution for upcoming moves. We expect two additional 25-bp cuts in 2024 and four rate cuts in 2025.

 China: we forecast GDP growth of 5.0% for 2024, driven by manufacturing and exports. Policies to reduce
housing inventories are expected to decrease the downside risk in 2H24.

 LatAm: Diverging monetary policy dynamics throughout the region.

Global: central banks likely to remain cautious Core inflation still pressured in several
after the start of easing cycles in Europe and countries

Canada 9.0%
8.5% Canada
8.0% Euro Zone
Persistent inflation and resilient activity are likely to 7.5% UK
make developed economies maintain their cautious 7.0% USA CPI
6.5% USA PCE
stance on wider rate cut cycles. Even central banks in 6.0% Australia
economies that have recently started to lower their 5.5% Sweden
5.0%
interest rates – such as in Canada and in the Eurozone 4.5%
– have indicated caution for their upcoming moves. 4.0%
Many countries continue to show resilient activity, tight 3.5%
3.0%
labor markets, and core inflation under pressure at the 2.5%
margin (see charts below). The exceptions are Canada 2.0%
1.5%
and Sweden, where a more significant improvement in 1.0%
inflation and a rising unemployment rate (at the margin) 0.5% 3mma saar
justified the recent start of an easing cycle. 0.0%
Dec-21

Mar-22

Jun-22

Sep-22

Dec-22

Mar-23

Jun-23

Sep-23

Dec-23

Mar-24

Jun-24

Source: Haver, Itaú

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Macro scenario – Global | June 10, 2024

DMs: Unemployment rate Underlying job growth at still-good levels

(minus Dec/19 level)
900 900
800 3mma 800
9
700 700
8
600 600
7 Canada
500 500
Euro Zone
6 UK 400 400
USA 300 300
5 Australia 200 200
4 Sweden
100 100
3 0 0
2 -100 ADP -100
-200 HS (rhs) -200
1 HS equivalent
-300 -300
NFP Private
0 -400 -400
Payroll States sum
-1 -500 -500

Feb-21
May-21
Aug-21
Nov-21
Feb-22
May-22
Aug-22
Nov-22
Feb-23
May-23
Aug-23
Nov-23
Feb-24
May-24
-2
2019

2020

2021

2022

2023

2024

Source: Haver, Itaú

Source: Haver, Itaú

Inflation moderated in April, but remains high,

U.S.: Deceleration in activity and inflation, but indicating a slow convergence. The core CPI
levels remain high and do not justify interest decelerated to 0.3% mom in April (from an average of
0.4% in 1Q24), while the core PCE reading slowed to
rate cuts much before year-end
0.25% (from an average of 0.36% in 1Q24), showing an
improvement at the margin but a pace still inconsistent
GDP growth decelerated to 1.3% qoq/saar in 1Q24,
with interest rate cuts. We expect inflation to moderate
but domestic demand remains healthy. 1Q24 GDP
ahead, but core inflation is only likely to show a
was revised downward (from 3.4% in the previous
deceleration in the yoy comparison toward the end of the
quarter), with 2.0% growth in consumption (compared
year (to levels below 3% for the core PCE and below
with 3.0% in the previous quarter) and negative
3.5% for the core CPI), due to sticky services inflation.
contributions from the external sector and inventories.
Despite the slowdown in activity data in April, we We continue to expect only one rate cut this year, in
continue to expect a robust annualized growth pace of December. We believe that the Fed still needs to see a
2.0%-2.5% yoy going forward, supported by domestic sequence of data that constitutes evidence of a slowdown
demand, which continues to show favorable in inflation in order to start its easing cycle with
fundamentals. Employment remains high, with monthly confidence, as signaled by its monetary policy committee.
job creation at 150,000-250,000, according to various Given our expectation of solid stable activity and a slow
metrics (see chart below). Furthermore, as real wages deceleration in inflation, we expect the committee to wait
advance, the real wage bill is likely to continue to drive until December to implement the first interest rate cut.
household spending ahead.

Europe: cautious approach to easing cycle amid

better activity at the margin and pressured
services inflation

Signs of better activity in the short term. The

Eurozone economy grew by 0.3% qoq in 1Q24, ending a
five-quarter period of stagnation. There were some signs
of improving consumption in France and Spain, while
exports and investment helped in Germany and Italy. PMI
surveys for the manufacturing and services sectors
indicate that the recent improvement continued in 2Q24,
with the Composite PMI at 52.3 (see chart below).

2
Macro scenario – Global | June 10, 2024

We raised our GDP growth forecasts to 0.7% for This prompted the ECB to start its easing cycle,
2024 (from 0.5%) and 1.0% for 2025 (from 0.9%). but it remains cautious about the next moves. The
The upward revision is supported by better current European Central Bank lowered the benchmark rate
data and an increase in real income, with high nominal by 25 bps to 3.75%, and signaled that the upcoming
wages and falling inflation, which will likely continue to moves will depend on the disinflation process. With the
support a recovery in consumer spending. It is worth marginal 0.1-pp upward revision of the core inflation
noting, however, that growth in the region will continue scenario for 2025, to 2.2%, President Lagarde
to be limited by the effects of the negative wealth expressed caution for the upcoming moves. We
shock caused by energy and gas issues, as well as expect two additional rate cuts in 2024 and four more
the structural challenges of an aging population, low cuts in 2025, taking the interest rate to 2.25%.
productivity and innovation.
China: growth supported by manufacturing
EZ PMI: 2Q24 GDP > 0 and exports, and more effective measures for
the real estate sector
65 2.50
2.25
63 2.00 The short-term scenario continues to show growth
60 1.75
1.50 supported by manufacturing and exports. We
58 1.25 forecast an expansion of 5.0% in 2024, in line with the
1.00
55 target set by the government. Manufacturing and
0.75
53 0.50 exports continue to be the main drivers of the robust
0.25 performance. The government remains focused on
50 0.00
-0.25 stimulating the industrial sector, particularly electric
48 -0.50 cars, solar panels and batteries. This measure has led
45 -0.75
-1.00 to excess capacity in the industrial sector and has
GDP QoQ% (rhs.)
43 PMI Composite -1.25 contained the prices of these products (for details, see
-1.50
40 -1.75
our Macro Vision report). The challenging geopolitical
38 -2.00 scene poses the biggest risk to the sustainability of
-2.25 this strategy over time, with the potential for tariff
35 -2.50
2008 2010 2012 2014 2016 2018 2020 2022 2024 increases in both Europe and the U.S.
Source: Haver, Itaú
The Chinese government announced more
effective measures to reduce its elevated housing
Bumpy disinflation amid resilient services inventories, which could speed up the sector’s
component. Inflation increased to 2.6% yoy in May adjustment. The government announced in May that
(from 2.4%), with core inflation rising to 2.9% (from the central bank will provide RMB 500 billion (0.4% of
2.7%). The rise in inflation was due to the base effect GDP) in subsidies for home purchases, helping to
of the public transportation allowance implemented in reduce the high inventories. However, we do not
Germany during the same period of 2023. At the believe that this will be enough to quickly tackle
margin, core inflation advanced to 0.35% mom in April inventory levels. We estimate that RMB ~2-3 trillion
(from 0.19%). Goods inflation remains low (hovering in (1.6-2.4% of GDP) would be needed to return
a range of 0%-1% yoy), while the services inventories to pre-pandemic levels. That said, we see
components remain resilient (at around 5%). This the measure as a move in the right direction and
shows that the last leg of the disinflation path toward expect it to help contain the pressures on prices, as
the target remains more challenging, given the tight well as to reduce the risk of slower growth in 2H24
labor market. Looking ahead, we expect inflation to (indicated by the waning credit momentum).
continue to decline, with goods prices at reasonable
levels and services receding at a slow pace, in line
with ongoing signs of cooling wage pressures (from
high levels).

3
Macro scenario – Global | June 10, 2024

LatAm: Diverging monetary policy dynamics Below the Fed in Peru. Relative to our previous
throughout the region scenario, we maintained our calls for monetary policy
paths throughout the region in all major economies
Activity forecasts are unchanged throughout most except for Brazil and Peru. In Brazil, due to partially
of the region. We kept our GDP growth forecasts for unanchored inflation expectations, a hot labor market
the main economies of the region. In Brazil, we left our and heightened uncertainty, we expect the central bank
GDP growth forecast at 2.3% for 2024, but we do see to interrupt the easing cycle in the next meeting, leaving
downside risks due to the massive floods in Rio Grande interest rates at 10.50% (previous scenario 10.25%)
do Sul state. For 2025, we expect the economy to slow throughout 2024 and 2025. In contrast, in Peru, we now
to 1.8%. In Mexico, we maintained our GDP growth envisage the Central Bank to ease by a total of 75 bps
forecast at 2.3% for 2024, which considers a recovery in this year (in 25-bp moves), taking the policy rate down to
economic activity in 2Q24 after a soft first quarter, and 5% (previous scenario 5.75%), in the context of well-
then a deceleration in the second half of the year, behaved inflation and weak economic activity.
leading to a 1.9% GDP growth in 2025 (unchanged from
The governing coalition is reelected in Mexico. The
our previous scenario). In Colombia and Peru we
presidential candidate of the governing coalition Claudia
maintained our 2024 GDP growth forecasts at 1.2% and
Sheinbaum was elected, as widely anticipated by polls,
2.7% respectively. However, we revised our 2024 GDP
yet the governing coalition surprised by achieving a
growth forecast up in Chile to 2.8%, from 2.4%, mainly
stronger than expected participation in Congress which
driven by the revision of national accounts data,
could pave the way for constitutional reforms. The newly
materializing upside risks we had flagged in the past. In
elected administration has stated that the direction of
Argentina, we still expect GDP to contract by 3% in
economic and social policy should continue unchanged
2024, yet with downside risks as the effects of shock
with respect to the AMLO administration, reflected as
therapy linger and investment still does not show clear
well with the continuation of the Finance Minister in the
signs of improving.
following term. The Sheinbaum administration faces
Fiscal risks remain an important watchpoint. Several several challenges in the near term, including the need
economies in the region are experiencing fiscal for a large fiscal consolidation in the context of an
pressures from revenue disappointments. This, in turn, economic slowdown in Mexico and the U.S.
is mainly a result of some deceleration of economic Constitutional reforms, as currently discussed in
activity, and sustained spending pressures. In Colombia, Congress, could stress medium-term spending and
significant revenue weakness in the year (-4.4% YoY impact fiscal accounts, and propose several institutional
year-to-date through May) should lead to spending cuts changes to the political and electoral system in Mexico,
to achieve the fiscal targets as the authorities are among others.
expected to deliver updated fiscal forecasts in mid-June;
in parallel, political uncertainty arising from calls to
reform the fiscal rule among others exacerbate risk
premium. However, in contrast to the rest of the region,
the stabilization program in Argentina continues to
deliver results with surpluses.

4
Macro scenario – Global | June 10, 2024

Global | Forecasts and Data

Compared scenario
World Latin America and Caribbean
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) 3.2 3.2 3.2 3.4 3.4 GDP (%) 2.2 2.1 2.0 2.4 2.4

Brazil Mexico
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) 2.9 2.3 2.3 1.8 1.8 GDP (%) 3.2 2.3 2.3 1.9 1.9
BRL / USD (eop) 4.86 5.15 5.15 5.25 5.25 MXN / USD (eop) 16.97 17.9 17.9 18.9 18.9
Monetary Policy Rate (eop,%) 11.75 10.50 10.25 10.50 10.25 Monetary Policy Rate (eop,%) 11.25 10.00 10.00 8.00 8.00
IPCA (%) 4.6 3.8 3.8 3.7 3.7 CPI (%) 4.7 4.3 4.3 3.9 3.9

Argentina Chile
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) -1.6 -3.0 -3.0 2.5 2.5 GDP (%) 0.2 2.8 2.4 2.0 2.0
ARS / USD (eop) 809 1150 1200 1700 1900 CLP / USD (eop) 879 920 920 850 850
Reference rate (eop,%) 100.0 30.0 40.0 30.0 40.0 Monetary Policy Rate (eop,%) 8.25 5.25 5.25 4.5 4.50
CPI (%) 211.4 140.0 160.0 50.0 60.0 CPI (%) 3.9 4.1 4.1 3.1 3.1

Colombia Peru
2023 2024 2025 2023 2024 2025
Current Previous Current Previous Current Previous Current Previous
GDP (%) 0.6 1.2 1.2 2.6 2.6 GDP (%) -0.6 2.7 2.7 3.0 3.0
COP / USD (eop) 3855 4000 4000 4000 4000 PEN / USD (eop) 3.70 3.80 3.75 3.80 3.77
Monetary Policy Rate (eop,%) 13.00 8.75 8.75 6.00 6.00 Monetary Policy Rate (eop,%) 6.75 5.00 5.75 4.25 4.25
CPI (%) 9.3 5.2 5.2 3.0 3.0 CPI (%) 3.2 2.8 2.8 2.5 2.5
Source: Itau

Commodities
2019 2020 2021 2022 2023 2024 2025
Current Previous Current Previous
Brent Oil 64 50 75 82 77 85 85 80 80
Iron Ore 90 153 116 110 135 110 110 90 90
Copper 7788 7788 9525 8402 8489 9800 8800 9800 8600
Corn 383 437 592 656 480 400 400 380 380
Soy 912 1207 1290 1474 1311 1100 1100 950 950
Wheat 540 604 790 757 669 720 720 760 760
Sugar 13 15 19 20 22 21 21 20 20
Coffee 130 123 235 166 188 180 180 150 150
Source: BBG, Itaú

5
Macro scenario – Global | June 10, 2024

Macro Research – Itaú

Mario Mesquita – Chief Economist

To access our reports and forecast visit our website:

https://www.itau.com.br/itaubba-pt/macroeconomic-analysis

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